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banks to the applicant to exercise their checking functions in a manner that better ensures that they do not provide the buyer with a false impression that the seller has provided compliant and genuine documents.

We will proceed to analyse the lack of balance in the rights and duties in transactions involving bank, seller-beneficiary and buyer- applicant, the damaging effect of not fully delineating the banks duties to buyer-applicants, and the necessity of banks acting fully within the mandate imposed by the contract between banks and applicants. We will emphasise the need for courts to insist on banks fully implementing their duty of exercising reasonable care in guarding the interests of the buyers (and indeed themselves, and for the explicit incorporation of the concept of good faith into the documentary system, which will help to crystallize the seller's duty of providing conforming and genuine documents.

3.4 The Principle of Documentary Compliance
3.4.1 Banks duties
(a) Duty to pay only over compliant documents
A letter of credit is a written undertaking by a bank to pay to the beneficiary when a beneficiary delivers the documents agreed upon. At the same time the buyer knows the letter of credit amount will be released only upon delivery of the conforming documents in accordance with the terms and conditions of the credit. The documents represent the key element in the

functioning of the letter of credit transaction. Their availability in conformity with the conditions agreed upon between the seller- beneficiary and the buyer-applicant determines the enactment of the letter of credit, i.e., the payment of the amount promised. Documents that comply with the credit conditions, in all respects, make it possible for the credit to function. Under the terms of the credit system, the implicit obligation of the bank is to pay against genuine conforming documents otherwise credits would be a sham and open to all sorts of chicanery and that by necessity, the letter of credit transaction, along with most other documentary credits, depends heavily on documents being correct at face value”.
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Article a) of the UCP however provides Banks must examine all documents stipulated in the Credit with reasonable care to ascertain whether or not they appear, on their face, to be in compliance with the terms and conditions of the Credit. Compliance of the stipulated documents on their face with the terms and conditions of the Credit, shall be determined by
international standard banking practice as reflected in
these Articles. Documents which appear on their face to be inconsistent with one another will be considered as not appearing on their face to be in compliance with the terms and conditions of the Credit (emphasis in
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M. Megrah, Risk Aspects of the Irrevocable Documentary Credit, Arizona Law Review,
(1982), vol, 255, at 257.
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Trade Finance Fraud - Understanding the Threats and Reducing the Risk, A Special Report prepared by the ICC International Maritime Bureau, ICC Publication No. 643; Paris
2002, at 16.

italics added) This provision, as demonstrated later in this chapter, does not provide a clear standard of care exercisable by banks. Ina) of the UCC, the issuing bank’s obligations towards the applicant have been defined as follows an issuer’s obligation to his applicant includes good faith and observance of a general banking usage It continues to use the subjective definition of good faith honesty in fact in the conduct of the transaction concerned The drafting committee refused to apply the objective requirement of observance of reasonable commercial standards of fair dealing to the definition that was present in Article 5 (’62).

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